Fed eyes rate hike as inflation and energy surge drive borrowing costs

The Federal Reserve is expected to raise interest rates this week, with markets putting the odds of a quarter‑point hike at roughly 85%. Inflation remains high, with core consumer prices up 2.4% over the past year and energy prices driving the recent surge. Gasoline prices jumped 3.9% in August, while wholesale diesel prices surged 24.1%, pushing oil prices above $100 a barrel as Middle‑East supply disruptions continue.

Housing activity remains depressed and hiring slowed, with 162,000 jobs added in August and an average of 71,000 jobs per month over the past three months. Wage growth is cooling too, with average hourly earnings up 3.1% over the past year. The Fed’s current rate range of 3.50% to 3.75% has already lifted long‑term Treasury yields and mortgage rates, making borrowing more expensive for households and businesses.

The Fed must protect its credibility, and Americans are already feeling the impact of an oil shock that acts as a tax on top of expensive mortgages, car loans, business loans, and federal interest payments. Orphe Divounguy, chief economist of Quantitative Research Group, has briefed the White House Council of Economic Advisers, testified before state legislatures, and delivers more than 40 speaking engagements annually. He specializes in housing, labor markets, and the broader economy.

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